when to exit short calls

 

13 jan

today was both satisfying but not profitable. satisfying that i followed my mechanics, set my alerts, took the action i wanted to after alert hit and was able to exit some positions that matched my "rules" BUT...

the frustrating thing that maybe one day i will have it dialed in is intra day closing of trades.. example.. i always say that ideal times to sell upside short calls is on an up day. you get higher premium, can choose a higher strike , etc ... so on monday after waiting and 4 down days in a row there was a decent up move and got a good fill on weekly 1100 call at $10.05 i believe off memory. the next 2 days as stock goes higher i see huge volume at same strike, i see a few on twitter mention the huge volume and they to add insult to injury it gets mentioned by Pete Najarian on cnbc who you know has front run the fuck out of it before going on air. i want to say it was in the mid 20s yesterday.. not really a problem since i could have rolled it for 50 points higher i noted in one of my tweets

over the last few weeks ive been changing my mechanics to NOT milk short calls till fridays, i figured i ended up rolling to next week for less premium or not up in strikes as much because i waited that one more day. so today ive got an order in working.. pennies away from a fill to roll the 1100 to next week 1120 for $13.50 i had it at one point.. that credit was staying pretty constant as the stock was selling off, dropping into the 12s and then its starting to look like i might not need that preemptive roll since the stock was in the 1060s i believe at the time so instead i just closed the 1100. bought back for 6.45 for about 40% win. but now towards end of day it was even under $1... so im feeling i lost $600 by not rolling at the correct time..  hindsight being 20/20

same example.. the other short call i was working this week was a 1065 .. bought a May 1025 call tuesday.. nearly at high of day and then pulled back , my fallback if my timing is off is to sell a weekly call against to lower the cost basis. im not selling the long call for a loss just for the sake of closing the position for the day. that short call was the 1065 . premium was $23..decent.. at the money.  then same thing, stock moves higher.. net net the "trade" is at a loss with the short call losing more (till decay kicks in) than the long call is gaining.. so again im looking at rolling and end up today rolling the 1065 to next week 1080 for $11.05 credit.. again decent premium for a week AND 15points higher in strikes.. looks like that best price today was near $16 so again im thinking i lost about $500 in what coulda shoulda been. natural to think that maybe i didnt need to roll to next week after all and the 1065 could go out worthless tomorrow or bought back super cheap

that next week 1080 i rolled to fell in value 30+% so per my rule i bought it back also

the overall thought was take action today because tesla will rebound today or tomorrow and i can reenter both short call slots higher.. best case for $20+each at 1130 level or higher

im starting to think on those wednesday / thursdays when i have been rolling that i tend to do that too early in the day.. off the top of my head i cant think of a time when ive said to myself "im glad i did that this morning" its always been "i would have done alot better if i would have waited till the last hour"... like today.. would have been a near $3000 difference in fills. i remain confident i dont need to wait till friday like i used to but will try to wait longer in the day on those roll days... of course if tesla reversed today into closing im a fucking genius worthy of guru status

lastly.. all this hubbub is about 2 slots for short calls.. i still have 13 short calls at 1000/1140 strikes for jan28 after earnings that have about $40000 in time value remaining to decay.. best case stock is near 1140 before earnings so i can roll those 1140 as high as possible but still take in about $10per in credit in order to give as much upside as i can assuming an earnings beat in line with the delivery numbers just reported.

Comments for the New Year

 

1 jan 2022

ok, couple thoughts, nothing earthshattering. just a review of the last year off the top of my head. 

As i head into this new year "retired" at 54 from working, i look back and see i had my best year ever with the stock market. 99% being premium selling. im optimistic that now that i can devote the entire market day to whats going on i will be able to catch more opportunities i was unable to capitalize on because of actually working.. those intra day moves.

every year i tell myself to do more of what works and less of what doesnt. in 2009 after 10years on the job i was layed off during the financial crisis and didnt work for 3 years. just got all my Obama unemployment that i could and played stock market and then was able to return to homebuilding once the market turned. 

during those 3 years i was primarily selling credit spreads and admittedly not doing as well as i expected and in my personal life i had significant debt built up, taking advances on credit cards with the idea of paying them off with the profits going forward. got to the point where i was just making due and paying the bills. After returning to work i focused on work for the next few years with the occasional trade. also given the technology of the time it was still possible but not convenient to trade stocks during the day.. i bought an iphone 5 back in the day to be able to monitor prices.

 the difference between now and then after getting back into the market 3-4 years ago is that i stumbled onto the youtube videos from the TastyTrade team. starting watching 1-2 a day talking about probabilities, standard deviations, rates of decay difference between an in the money vs out of the money options, optimum entry and exit points, differences in trading between high and low IV... after absorbing all that info i looked back at those 3  years of trading after the layoff and wondered how i managed to not lose more. was clueless

my trading turned around just like that. i dont follow their mechanics 100% but it forms the basis for alot of my decision making. so i want to say i am a much better trader now vs then. i do entries and exits now i would not have considered back then. Thus i am confident going forward that 2022 will be profitable, just have the house note and 13K on one truck left as my legit debt.. Plus about $125k in 401K that will get rolled into my etrade IRA in a few weeks.

along the lines of do what has worked and stop doing what doesnt work. looking back, Put selling was the standout straightforward winner. as the year passed by i became higher and higher all in on TSLA and going off memory i was 30 for 31 profitable put sales on TSLA.. with the one loss just being a technicality of $100ish. my entries where pretty much under 20 delta and also looking back i could have gone a bit more aggressive on that delta.

some of my internet trader friends have iron condors dialed in but im under 50% wins on those.. even when i leg into it via selling credit spread, and days later selling the other side.. one side always seems to get tested causing me to defend the trade for weeks or months. its such an aggravation to roll over and over for pennies often to delay a loss trying to thread the needle at opex time . so despite the headline ease of the trade i will resolve to not do them.. tactically you can argue that they do take up some buying power that could be applied to a higher probability profitable trade . so theres that too

the short put selling has been the percentage winner but the shear monetary winner via how is it impacting the portfolio balance has been the diagonal spreads. buying 6months out to Jan2024 long calls as a replacement for the stock and selling short term (weekly/2weeks out) calls against for income. straight up just like a covered call. my personal goal has varied where i want to collect between $5000-$10000 a week in credit depending on how many long calls i have. a $10 credit per is a good starting point. i have noticed this year i am spoiled and have to check myself.. i catch myself mentally saying "that trade would only make $4000" this week. i have to put that in context of how much would i make for a month on the job and or that x52 weeks.. is $4000 bad for a week? big problems to have. So the diagonal spreads will continue

i huge part of premium selling unless you get whipsaw price movement is actually just waiting.. waiting on that premium decay. so its nearly a daily challenge to not have to do something. sell something, buy something.

although i have 10-15 stocks on my watchlist like i said im 99% in TSLA. i want to say that the advantage is i can put on multiple trades with high probabilities.. such as if i have short calls at 1000. i could add credit put spreads below that.. only one of these trades will be a potential max loss.

Surprisingly i see that when i entered long positions on big sell offs on those other stocks on my watchlist or at least stocks im someone familiar with, my win percentage is poor. ive reduced my losses considerably by entering via diagonals but all in all entering long via buying is a no go.. for me a Put sale or credit put spreads month or 2 out has been more successful. which is not a surprise since the whole Tastytrade thesis is that option selling is the way to go , not option buying.. not always but it lines up to what ive been doing.

Mechanically looking back my short call strike selections could have been a tad higher (higher delta). although when the stock has taken off , my short strike selection really didn't matter.. the stock (TSLA) moved 100's in a few weeks. but i will keep that in the back of my head. there is that balance between are you bringing in enough premium for just your general goals / bill paying and to offset the decay in your long calls

my "gut check" rule has served me well. "if the trade doesn't feel right in first 5 seconds i should pass" and my gut overrules any metrics or TA.

so just some random thought, not a to do list of resolutions but a refocus on what has served me well. the high probability entries, taking profits in a mechanical method and rolling based on daily changes in IV and theta i think has maximized the credit. 

Alec Baldwin in Glen Garry Glen Ross has that Alway Be Closing scene.. ive stolen that and made it Always Bring in Credit - ABC

if i continue to maintain focus it should be a very boring year but profitable

Tesla Short calls

 30 oct

as most of my online friends know i own deep in the money leaps and sell short calls near dated for premium.. the intent is that the short call premium is the money maker. price appreciation via the leaps is gravy.

as weve all seen , TSLA has taken off the last 2 weeks and would have blown thru the top range of any short calls i would have had or rolled to. regardless, what to do now. last week i had the Oct29 905 short calls , a 6 lot, with stock around 1050 ... way above my short calls.

so at the current premiums i could only roll up and out a week to the 910s and it not be a debit.. whether its 905 or 910 doesnt matter much as far away the stock is so i decided to roll to Nov05 905s to get max credit. on down days the premium improves in my favor, on up days i would get less premium to roll. i checked every day last week and the premium was between 4 and $8.50 credit.. at one point i believe wednesday i entered an order at $8.35 credit and was at midpoint right before closing with no fill.

i expected a pullback in morning so i increased the premium to $8.50 GTC order since i would not be behind computer in morning. i didnt mess with the order and yesterday im with a customer and i get the confirmation emails that 5 of the 6 lots filled at $8.50. i logged in 15 min later and the midpoint was about $4.50. cant explain what happened but i will take it. score one for the little man. i closed the 6th lot at $4.85 in the afternoon.

now the point of all this is that even with the stock nearly 200 points out of the money near 1100 i was able to roll my 6lot position for between $4.85 - $8.50 for $3000+ for a week. the ideal time to roll is on big down days, if stock drops 50 points and the IV increases i might be able to roll from 905 to 925 and still get small credit but until that happens the question is (and the answer may not be the same for all based on your short call strike and what else you have going on) is the $3000 for a week worth it to stay as is?.. as in roll 905 to 905 to 905 maybe the occasional roll up 5points

if the stock keeps going higher and higher that $3000 credit to roll will do down and down so at some point you might decide youre commiting xyz dollars and only getting $750 to roll so you reset the positions. 

but im also still expecting a gap fill at some time, sooner than later would be helpful so for the moment a 905ish short call is ideal for a gap fill to the 900-910 area.

so to answer my own question. that $3000 credit and some short put sales/credit put spreads added in there is enough per week